Faced with hyperinflation and borders closed to humanitarian aid, Venezuelans are turning to cryptocurrency as a workaround of government control of money. Aid providers say digital currencies are becoming an important route to bypassing corruption or repressive regimes.
Digital currencies have no shortage of critics, who point to their use in scams, theft and money laundering. U.S. lawmakers blasted Facebook’s plans for a cryptocurrency, and regulators routinely warn of wild volatility.
In Venezuela, it’s a different story.
Digital currencies like bitcoin and ethereum are being used to protect against Venezuelan inflation, which could reach 10 million percent this year, according to the International Monetary Fund. The number of people using the cryptocurrencies is small relative to Venezuela’s population, but the use of bitcoin has soared from almost nothing in mid-2018 to the equivalent of 120 billion bolivar last month, according to cryptocurrency information site Coin Dance.
Charities have turned to digital assets to circumvent President Nicolas Maduro’s chokehold on the country’s economy and ban on foreign aid.
“If we didn’t have crypto, I don’t know how we would do this in a place like Venezuela,” said Joe Waltman, executive director of the U.S.-based nonprofit group GiveCrypto, which sends money directly to the country’s residents.
The nonprofit was started by Brian Armstrong, the co-founder and CEO of the digital currency exchange Coinbase. So far, GiveCrypto has raised about $4 million in digital assets from industry insiders like Armstrong. Unlike other charities that accept cryptocurrency donations, but then convert them to fiat currencies, GiveCrypto holds most of its assets in digital currencies, which exposes it to the fluctuations of the market.
Unsure where to begin, GiveCrypto started out by testing a “rough hypothesis that crypto has the highest likelihood of helping people where something fundamental is broken,” Waltman said. Eventually, the nonprofit settled on broken economies.
“There is no place more broken than Venezuela right now,” he said. “You have formerly upper-middle-class people — doctors, lawyers, accountants — who are struggling to purchase enough calories every day for their families.”
The organization has distributed about $200,000 directly to Venezuelans through a network of local “ambassadors,” community leaders in charge of identifying people in need, Waltman said. The “ultimate goal,” he said, was to “spark a crypto economy” in the country.
GiveCrypto and in-country organizations Bitcoin Venezuela and Eat BCH, which take in crypto donations and distribute food and medicine, have helped alleviate the “suffering of Venezuelan people,” said Moises Rendon, a fellow at the Center for Strategic and International Studies. Rendon heads the center’s Future of Venezuela Initiative.
Bypassing government economic control
Perhaps more important, those groups found a way to access international support while bypassing the Maduro regime’s control of the economy and banking system, Rendon said. “This is one of the first cases that we’ve seen how technology can play a key role in getting aid to a closed environment.”
Rendon acknowledged there’s still a long way to go, but he sees Venezuela as proof of cryptocurrency’s potential to make humanitarian aid more efficient and transparent, saying the technology offered “unprecedented solutions.”
“I think the whole community should be working toward that direction and using decentralized, transparent cryptoassets to move money and to move aid,” he said.
Digital currencies and the blockchain technology they use could cut down on aid lost through local corruption, Rendon said, referencing a 2012 speech by Ban Ki-moon when he was secretary general of the United Nations. Ban said corruption prevented 30 percent of the U.N.’s development assistance from reaching its final destination the previous year.
“With cryptocurrency, you have about 30 percent more money to give,” Rendon said. “If we can find a way to cut corruption and bureaucracy out of the equation, that means we can help more people.”
Joe Huston, the CFO of GiveDirectly, a charity that sends cash transfers to people in Kenya, Uganda and Rwanda, also sees potential in cryptocurrency, especially for cutting down on the cost of moving money.
GiveDirectly reported about $30 million a year in direct grants in 2016 and 2017. About 2 to 3 percent of the organization’s total budget gets eaten up by fees charged for banking services, exchanging currency and fees for mobile money systems like Kenya’s M-Pesa, Huston said.
In theory, the organization could bypass those systems and fees through cryptocurrency, he said. The nonprofit is exploring cryptocurrency as a way to send cash in West Africa in partnership with CELO, a nonprofit group that makes financial tools more accessible.
“The promise is certainly there. You could make payments cheaper for some of the poorest people in the world,” Huston said. “[But] I think given where we are today, we’re mostly not there yet. We’re at the cusp.”
Rendon agreed. For starters, the value of donations received by Bitcoin Venezuela and EatBCH number in the thousands, maybe tens of thousands of dollars. He said that’s “peanuts” compared to large-scale humanitarian aid, typically measured in millions, even billions, of dollars.
The Venezuelan organizations don’t have the infrastructure to move millions into the country, he said. Those that do have infrastructure lack the technical capacity.
GiveDirectly’s Huston added that he would like to see more crypto products designed with poor people in mind. To be viable for GiveDirectly, a digital currency would need to account for people’s lower financial literacy and ability to weather volatile markets.
“For somebody who lives on less than $1 a day and has less than $50 in assets, a cryptocurrency that can move up or down more than 100 percent in a year is a pretty scary proposition,” he said.
“Stable coins,” which are pegged to a national currency like the U.S. dollar, present a possible avenue to avoid volatile crypto markets, Huston, Rendon and GiveCrypto’s Waltman said.
Legal barriers, however, might slow or stop large-scale crypto philanthropy. Navigating the legal systems in countries with different stances on cryptoassets could complicate things for aid organizations, Rendon said.
Huston said more robust legal infrastructure would actually help charities that want to use digital assets to move money. Right now digital currencies are most useful in countries like Venezuela where they’re subverting local controls, he said.
“That can have a place, but it’s not a sustainable long-term role, or at least for something to have a big role in the global aid ecosystem or development world,” he said.